WHILE THE FED's AWAY BUBBLES TO PLAY

The warnings are getting boring. Like the 5, or was it 6, Orange Terror Alerts, that have all ended with no attack. The Bears on Wall Street, myself included, continue to point out the warning signs and dangers that abound in the economic "chatter", yet the equity markets continue to reach higher and the investing public keeps going about its normal business of pumping money into their mutual funds. The dishonest economic propaganda that comes from the Bush administration daily fuels there confidence and hopes. All the while, seemingly smart and informed economists and strategists jump up and down warning that an attack of sorts is imminent.

Morgan Stanleys proverbial chicken little recently opined that the Feds easy money policy, while being effective near term, has unfortunately resulted in some unwanted by-products. In his words, "this approach has another worrisome by-product: It has become a breeding ground for a string of additional asset bubbles that have come on the scene in the aftermath of the burst equity bubble. That’s not just true of property but also of bonds, credit instruments, emerging market debt, and tech stocks (again). This multiple-bubble syndrome is strikingly reminiscent of the moral hazard play that became central to the Great Bubble of the late 1990s — the recognition on the part of investors and speculators that Fed accommodation was here to stay. As long as the Fed takes interest-rate risk out of the equation, one bubble begets another. "

I know we have been hearing about bubbles for awhile now, but eventually, the reality of the matter will become apparent, and as usual it will be in hindsight and will hurt that much more. So as the FED has promised to be "patient" it is also allowing the animal instincts to run wild and encouraging the stock market to inflate. When the FED decides to come home and take away the liquidity, there will be hell to pay for all the bubbles they blew.